Copy of AFF Sentinel V21 #51-The Intertwining of Trade & the Economy-Part II
- Steve Dittmer
- Jul 22
- 4 min read
Economists Don't Read Data the Same Way
Steve Dittmer | AFF Sentinel
Colorado Springs, CO
Originally sent to subscribers 12/03/24
Alan Blinder is one of those Federal Reserve and Ivy League (Princeton) economists of the Keynesian persuasion whom the Wall Street Journal recently featured. He is as good a representative of non-supply side economics as they come in the last 50 years. His editorial noted that the 2017 tax cuts were feared by many economists as inflationary because “fiscal stimulus boosts spending.” He admits that “that inflation never happened.”
Incredibly, he makes no distinction between private sector spending (from the tax cuts) and government spending. He said the Republicans blamed the American Rescue Plan act for part of the inflation surge -- “probably only a little inflation.”
He also reads the data differently, as he claimed consumers paid “almost 100 percent of the tariff increases recently.” We’re not sure what he means by “recently,” as that could mean Trump tariffs or Biden leaving tariffs on or the first response to tariffs. He calculates that tariffs could raise prices between 1.4 and 2.8 percent but that would be one-time occurrences.
Blinder also fears what Trump without “guardrails” would do about the Federal Reserve, insults the Supreme Court and believes the stock market will collapse if Trump attempts to undermine the Fed.
So much for the Democrat stalwarts of years’ past. But he gets opinion pieces in the Journal several times a year.
Speaking of the Journal, Greg Ip writes economics pieces for the Journal on a regular basis. Sometimes we agree with him, sometimes not. He is one of those who applaud the appointment of Scott Bessent as Treasury Secretary, as someone the markets have confidence in. Bessent is in tune with Trump’s wish to extend the 2017 tax cuts and use tariffs as a tool. He believes Trump is a free trader whose method is to “escalate to de-escalate.”
Bessent believes tariffs can increase revenue to the Treasury, encourage businesses to restore production and “reduce our reliance on industrial production from strategic rivals,” Ip pointed out.
That sounds to us like Trump means not to be dependent on China for critical technical and military components. We agree, just as allowing China to buy up land within spitting distance of military bases is naïve. We don’t believe, in general, of limiting foreign ownership of land in America but an exception needs to prevail for national security when a military rival is purchasing for obvious strategic reasons.
We disagree with Ip that cutting taxes, including some new promises Trump made during the campaign that will not have major effects on revenue, will force deficits to rise. While they may have some impact short-term, Ip must be ignoring the increased federal revenue from tax rates cuts in year two and beyond.
There is also one other factor to consider. It is decades since any president came into office with a serious determination to dramatically cut federal spending. Elon Musk and Vivek Ramaswamey, along with OMB’s Russ Vought, are serious about the task. We would be willing to bet they find a major sum of money in savings in the federal budget. After all, they have a fat, rich target.
Kevin Hassett, who chaired the Council of Economic Advisers in Trump’s first term, will now chair the National Economic Council, which coordinates all economic policy within the executive branch, Ip noted. He described Hassett as a conservative economist and tax cut advocate.
We would note it was Hassett’s research that predicted the corporate tax rate cuts would boost wage levels and that is exactly what happened from the 2017 tax cuts.
A factor which no one has ever had to account for is how much effect on the labor supply deporting illegals will have. The first emphasis will be on those whose criminal record extends beyond entering the country illegally. That will take some time and do little to affect the labor supply. It will reduce crime, eventually save money for communities and reduce the flow of illegal drugs in the country.
Mass deportation could have some effect on agriculture, as the shortage of labor willing and able to work in the fields and the processing chain is always in short supply. But whether the percentage is enough to have significant effect on production and harvesting is hard to gauge. It is likely less than some claim, especially in the processing chain, but no one can say for sure. The beef packers have more wherewithal and more elaborate processes in place to screen out illegal workers than the average vegetable or fruit grower.
Of course, the function of tariff threats was dramatically shown recently, when Mexico’s president was on the phone right away and Canada’s Trudeau was on a plane within days of Trump’s threat to levy tariffs. We didn’t think Trump could do anything about the flow of illegal immigration when he wasn’t yet president. But he figured out a way. The tariff was a method of doing even out of power what countries knew he would do when back in power.
The economic power of the U.S. market is a magic bullet that Trump will not hesitate to use if he has to. And you can bet China’s Xi was watching and calculating.
Our address: Agribusiness Freedom Foundation, P.O. Box 88179, Colorado Springs, CO. 80908.
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